The Number That Explains Why You’re Always Tight

How long does it take from the moment you pay your supplier to the moment a customer pays you? That gap has a name. It's called the cash conversion cycle, and most DDC founders have never calculated it. For most brands, that number is somewhere between 60 and 120 days, meaning you pay today and your cash doesn't come back for 2 to 4 months. That's not a cash flow problem, that's a timing problem, and it explains everything. In this video, I'm going to teach you exactly what CCC is, how to calculate yours in 15 minutes, and why it might be the single most important number in your business that you've never looked at. I'm Lara Guevara, 17 years in supply chain from enterprise to DTC, and the cash conversion cycle is the number that explains why you always feel tight even when revenue is growing, even when you're profitable on paper, even when your accountant tells you things look fine. Last week we talked about inventory as a loan you make to yourself. Your cash gets locked in product and doesn't come back until someone buys it. If you missed that one, I linked it in the description. Go watch it after this because today builds directly on that idea. Today we're getting specific. Last week was the reframe, today is the math. We're putting an exact number on how long your cash disappears every time you place a purchase order, and once you see that number, you cannot unsee it. Okay, let me make this simple. The formula looks scarier than it is. So CCC equals DIO plus DIO RO minus DPO. 3 letters, 3 numbers, that's all. Let me walk you through each one. DIO, Days Inventory Outstanding. First, DIO, Days Inventory Outstanding. This is how long your inventory sits before it sells. How many days does product live in your warehouse between arriving and leaving? DIO is equal to average inventory divided by COGS times 365. Take your average inventory value, divide by your annual cost of goods sold, multiply by 365. That's your DIO. Example: you have 100K in average inventory, your annual COGS is 400K. That's 100K divided by 400K times 365. DIO equals 91 days. Your inventory sits for about 3 months before it turns into revenue. 3 months of cash parked. Now, DRO, that's the second, Days Receivables Outstanding. This is how long it takes to actually collect payment after you make a sale. Now, if you're pure DTC, Shopify, your own site, this number is tiny. Credit cards settle in 1 to 5 days depending on your processor. This is one of the beautiful things about DTC, you get paid fast. But if you're doing wholesale, retail, this gets ugly. Net 30 terms, net 60, suddenly your DRO shoots up to 30, 45, even 60. You ship the product, it's in their store, their customers are buying it, and you still haven't paid. That's your cash sitting in someone else's business. Now the third, DPO, days Payables Outstanding. This is how long you take to pay your suppliers, and this one is different from the other two because this one works for you, not against you. The longer your payment terms, the more float you have. So if you're doing net 30, that means you have 30 days of your supplier's money working in your business. Net 60, even better. DPO is the only lever in this equation that you want to push higher. And here's what a lot of founders miss: DPO is negotiable. Your payment terms aren't set in stone, but we'll get into that. All right, let's put it all together with a real example. A brand, mostly DTC, inventory sits for about 90 days, 3 months, which is pretty common. Credit card settles in 3 days, and they're on net 30 with their main supplier. CCC equals 90 plus 3 minus 30, 63 days. Your cash is trapped for 63 days. Every single purchase order you place, that money vanishes for 2 months before it comes back. And if you're placing monthly POs, you've got overlapping cash commitments stacking on top of each other. February's cash hasn't come back yet and you're already spending April's. Now here's the thing that makes this powerful. Once you know it's 63, you can start asking, what if I got it to 50? What if I got it to 40? Every day you shave off your CCC is a day your cash comes home faster. And that's not a theory, that's real money you can use. I want to tell you about a founder I worked with. She was doing $3 million a year, growing 40% year over year, profitable on paper. Her P&L looked great, but she was always scrambling. Always stressed about cash, pulling credit lines, delaying her own paycheck, negotiating extensions with vendors, and she couldn't figure out why. She said to me, Lara, we're profitable. I can see it in the numbers, but we never have cash in the bank. What's going on? I asked her one question: What's your cash conversion cycle? Blank stare. She'd never heard the term, so we sat down and calculated it. DIO is 95 days. She's carrying over 3 months inventory. DRO, 27 days. She was doing about 30% wholesale, and those buyers were slow to pay. DPO is 15 days. She was paying her suppliers in 2 weeks, faster than she needed to because nobody had ever told her to negotiate terms. So DIO, 95, plus DRO, 27, minus DPO, 15. CCC is 107 days. 107 days. Her cash was trapped for 3.5 months on every cycle. On $3 million in revenue, that meant she needed roughly $900K in working capital just to keep the lights on, just to operate, not to grow, not to launch new products, just to exist. It was never a revenue problem. It was never a profitability problem. It was a timing problem. Her business was a machine that 8 cash for 107 days before spitting it back out, and she didn't know that number existed until we calculated it together. So now you know the formula and you've seen what numbers— when the number gets out of control, the next question is, where are those extra days hiding? Because they're always hiding somewhere. Here are the 5 places I find them in almost every brand I audit. Number 1, Too much safety stock. We talked about this last week. Every extra month of inventory you're holding adds 30 days to your DIO. You think you're protecting yourself from stockouts, but you're actually extending the time your cash is trapped. Buffer is smart, hoarding is expensive. Number 2, slow-moving SKUs. You know the ones, they sell 2 or 3 a week, maybe 10 a month, and you've got 6 months of stock on them. Those products are dragging your average DIO up. They're sitting there at 90 days, 120 days, 180 days, and they're pulling your whole number into the danger zone. Run your 80/20. I guarantee your bottom 20% of SKUs are responsible for 50% or more of your DIO problem. Number 3, weak payment terms. If you're paying your supplier in 15 days when you could be paying in 30, that's 15 days of DPO you're leaving on the table. Free float gone, and a lot of founders never even ask. They just pay whatever the invoice says because they don't realize terms are a conversation, not a decree. Number 4, wholesale without deposits. If you're shipping products to retailers on net 30 or net 60 with no deposit, you are financing their inventory with your cash. You're basically giving them a free loan. So require deposits. Even 30% upfront changes your DRO dramatically. And number 5, this one is sneaky: ordering too early. You place a PO 3 months before you need the product because you're nervous about lead time. The goods arrive and they sit for weeks, sometimes months. That's DIO inflation caused by poor order timing, not poor supplier performance. The fix is knowing your real lead time, not your anxious lead time. Track it, measure it, then order based on data, not fear. By the way, if you're watching this and thinking, I need to build actual systems around this, that's exactly what the MOVE Accelerator program is for. It's a practical DTC course that connects marketing, finance, and supply chain into one growth system. 11 modules. You build your own supply chain blueprint, your flywheel dashboard, your 90-day action plan. It's the system behind everything I teach you on this channel. Link in the description if you want to check it out. Now that you understand the formula and where the problems hide, let's talk about what good actually looks like, because CCC is relative. It depends on your business model. If you're DTC only, your own site, Shopify, no wholesale, your receivables are tidy, you're getting paid in days, so your CCC is mostly driven by inventory. For DTC only, excellent is 30 to 45 days. It needs work if it's 75+ days. Excellent is 30 to 45 days. That means tight inventory, fast turns, and decent supplier terms. If you're above 75, there's real money to recover. If you're DTC plus Amazon, it gets a little longer because Amazon has its own payment cycles and you're managing FBA inventory timing. So Amazon DTC plus Amazon, excellent is 45 to 55 days, needs work if it's 90+ days. And if you're DTC plus wholesale, this is where it gets real. Wholesale destroys your DRO. Those net 30, net 60 terms balloon your cycle. So DTC plus wholesale, excellent is 60 to 75 days, needs work if it's 110+ days. More channels, means more cash timing complexity. That's not a reason to avoid channels, it's a reason to manage the timing. Now, if you're at 110 or above, don't panic but do the work, because every 10 days you shave off your CCC at $3 million in revenue frees up roughly $80K in working capital. That's not a rounding error, that's a product launch, that's a hire, that's a breathing room. So homework time. And this one is even faster than last week, just 15 minutes. That's it. Pull your average inventory value and your annual COGS. Divide inventory by COGS, multiply by 365. If you don't have a full year yet, use whatever period you have and adjust. That's your DIO. Step 2, if you're a DTC only, use 3 to 5 days. If you have wholesale, pull your accounts receivables balance and divide by average daily revenue. That's your DRO. Now, step 3, find your DPO. Look at your supplier payment terms, net 15 or 30. That's your DPO. If you have multiple suppliers with different terms, use a weighted average based on spend. Step 4, CCC is equal to DIO plus DRO minus DPO. Add DIO and DRO, subtract DPO. That's your cash conversion cycle. That's how many days your cash is trapped on every cycle. Write the number down. It's your new north star. 15 minutes, one number, and I promise it will explain more about your cash situation than 6 months of staring at your bank balance. Your cash conversion cycle explains why you always feel tight. It's not that you're bad at business. It's not that your margins are wrong. It's that your cash takes too long to come home, and now you have a number for it. Know your number, then shrink it. Coming up in this series, week 3, the reorder timing system that stops the bleeding. I'm going to give you the exact framework for knowing when to order, how much to order, and how to stop guessing. Now, week 4, how one brand freed $120K in cash without selling a single extra unit. That's a real story. You're going to love it. And if you haven't watched last week's video yet, you're not cash Your Inventory Reach, go watch it. It sets up everything we talked about today. I'll put it right here. And if this series is making you think, I need to go get serious about supply chain, check out the MOVE Accelerator. It's the full system, 11 modules, templates, certification, links in the description. Subscribe so you don't miss the rest. Do the calculation this weekend and drop your CCC number in the comments. I read every single one and I want to see where you're at. I'll see you next week.